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The value of customized insurance for farmers in rural Bangladesh:

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  • Clarke, Danielle
  • Das, Narayan C.
  • de Nicola, Francesca
  • Hill, Ruth Vargas
  • Kumar, Neha
  • Mehta, Parendi

Abstract

Farmers in rural Bangladesh face multiple sources of uninsured risk to agricultural production and household assets. In this paper, we present results from an experimental demand-elicitation exercise in rural Bangladesh to shed light on smallholder farmers’ interest in formal insurance products. We propose a suite of insurance and savings products, and we randomly vary the price of one insurance option (area-yield insurance) and the presence of one of the savings options (group savings). Consistent with economic theory, farmers buy more of the insurance products that cover the risks they primarily face. However, because farmers are subject to a variety of risks, they do not focus on only one type of insurance; instead, they evenly split their endowment between life and disability insurance and agricultural insurance. Demand for area-yield insurance falls with price; we also observe important cross-price elasticities with other insurance products. The presence of group savings does not alter demand for insurance, though group savings is found to be a particularly popular risk management tool, especially when decisions are made in groups.

Suggested Citation

  • Clarke, Danielle & Das, Narayan C. & de Nicola, Francesca & Hill, Ruth Vargas & Kumar, Neha & Mehta, Parendi, 2012. "The value of customized insurance for farmers in rural Bangladesh:," IFPRI discussion papers 1202, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifprid:1202
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    References listed on IDEAS

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    1. Megan Beckett & Julie Da Vanzo & Narayan Sastry & Constantijn Panis & Christine Peterson, 2001. "The Quality of Retrospective Data: An Examination of Long-Term Recall in a Developing Country," Journal of Human Resources, University of Wisconsin Press, vol. 36(3), pages 593-625.
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    3. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    4. Daniel J. Clarke, 2016. "A Theory of Rational Demand for Index Insurance," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 283-306, February.
    5. Francesca de Nicola, 2011. "The Impact of Weather Insurance on Consumption, Investment, and Welfare," 2011 Meeting Papers 548, Society for Economic Dynamics.
    6. Ruth Vargas Hill & John Hoddinott & Neha Kumar, 2013. "Adoption of weather-index insurance: learning from willingness to pay among a panel of households in rural Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 44(4-5), pages 385-398, July.
    7. Park, Cheolsung, 2006. "Risk Pooling between Households and Risk-Coping Measures in Developing Countries: Evidence from Rural Bangladesh," Economic Development and Cultural Change, University of Chicago Press, vol. 54(2), pages 423-457, January.
    8. del Ninno, Carlo & Dorosh, Paul A. & Smith, Lisa C. & Roy, Dilip K., 2001. "The 1998 floods in Bangladesh: disaster impacts, household coping strategies, and responses," Research reports 122, International Food Policy Research Institute (IFPRI).
    9. Ruth Vargas Hill, 2009. "Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households," Journal of Development Studies, Taylor & Francis Journals, vol. 45(2), pages 151-171.
    10. Shawn Cole & Xavier Giné & James Vickery, 2017. "How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment," Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1935-1970.
    11. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1996. "Changes in Background Risk and Risk-Taking Behavior," Econometrica, Econometric Society, vol. 64(3), pages 683-689, May.
    12. Clarke,Daniel Jonathan & Mahul,Olivier & Verma,Niraj, 2012. "Improving farmers'access to agricultural insurance in India," Policy Research Working Paper Series 5987, The World Bank.
    13. A. Mushfiq Mobarak & Mark Rosenzweig, 2012. "Selling Formal Insurance to the Informally Insured," Working Papers id:4777, eSocialSciences.
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    Cited by:

    1. Awel Y. & Azomahou T.T., 2015. "Risk preference or financial literacy? Behavioural experiment on index insurance demand," MERIT Working Papers 005, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Ward, Patrick S. & Spielman, David J. & Ortega, David L. & Kumar, Neha & Minocha, Sumedha, 2015. "Demand for complementary financial and technological tools for managing drought risk:," IFPRI discussion papers 1430, International Food Policy Research Institute (IFPRI).
    3. Clarke, Daniel J. & Kumar, Neha, 2015. "Microinsurance decisions: Gendered evidence from rural Bangladesh:," IFPRI discussion papers 1465, International Food Policy Research Institute (IFPRI).
    4. Ahmed, T., 2013. "Scoping report: Current status of index-based insurance in Bangladesh," Working Papers, The WorldFish Center, number 40289, September.
    5. Platteau, Jean-Philippe & De Bock, Ombeline & Gelade, Wouter, 2017. "The Demand for Microinsurance: A Literature Review," World Development, Elsevier, vol. 94(C), pages 139-156.

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    Keywords

    Risk; Insurance; demand; Elasticity; Decision-making; rural areas;

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